Delaware regulators have agreed to end a three-year court battleto implement a regulation that would restrict the ability of aninsurer to nonrenew a homeowner's policy based on claims history,insurance trade groups said today.

The nonrenewal issue is now in a bill being considered by theLegislature.

The American Insurance Association (AIA) and the PropertyCasualty Insurers Association of America (PCI) said they and theDelaware Insurance Department had agreed to a "stipulation ofdismissal" for the case that was pending before the DelawareSupreme Court.

Insurer groups had successfully challenged the department'sRegulation 703, but the department had been appealing it.

AIA and PCI originally filed a complaint seeking declaratoryrelief in New Castle County Superior Court on Oct. 31, 2005. Theyargued that the department did not have statutory authority toadopt Regulation 703 and asked the court to find that theregulation was null and void without force or effect.

The Superior Court ruled in favor of the organizations on themerits Jan. 2, but the department filed the appeal, which theyagreed to dismiss.

A statement from Eric Goldberg, AIA associate general counsel,said the group is pleased with the outcome. "Regulation 703 waswrong on three counts. First, a regulatory agency cannot make newlaw. Second, it reflected a fundamental misunderstanding of howinsurance underwriting works. Third, it was overly restrictive andfar exceeded the scope of similar state laws throughout thecountry."

Richard Stokes, PCI regional manager and counsel, said theinsurance industry had initially offered to work with thedepartment "to resolve the issue for the benefit of consumers priorto filing the complaint. The final regulation was adopted asinitially proposed."

He said the case involved "an important constitutional issue.There was no statutory basis for the proposed regulation. Byseeking to go beyond the statutory powers of the office, theproposal raised important separation of powers issues."

The insurer groups said Regulation 703, titled ProhibitedPractices Related to the Nonrenewal of Residential Homeowners'Policies, "violated a very fundamental principle of administrativelaw: a regulatory agency cannot make new law under the guise ofadministrative agency rulemaking. This privilege is reserved forthe legislature and the courts."

They added that the regulation proposed on Oct. 1, 2005 "wouldhave severely restricted the ability of an insurer to nonrenew ahomeowner's insurance policy based on claims history. Claimshistory remains a key, objective underwriting tool that insurersuse to predict additional future losses. If enacted, Regulation 703would only have served to increase the costs of homeowners withgood loss experience by forcing them to subsidize the insurancecosts of those with poor loss experience."

AIA and PCI noted that the Delaware General Assembly iscurrently considering a bill (S.B. 191) which addressesrestrictions on homeowners' insurance policy cancellations.

According to the organizations, that bill "provides a balancethat assures consumers receive important benefits while providinginsurers the ability to offer homeowners' insurance in a morestable regulatory environment."

They said this agreed-upon compromise version of the bill issimilar to laws in many other states and is expected to beconsidered by the legislature today. AIA and PCI added they arehopeful of final passage and signature by the governor.